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ACCA Paper P3Business Analysis

For exams in 2013

Notes



ExPress Notes ACCA P3 Business Analysis

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Contents

About ExPress Notes 3

1. The strategic position of an organization 7

2. The environment and competitive forces 10

3. Marketing and the value of goods and services 16

4. Internal resources and stakeholders 19

5. Strategic choice 22

6. Strategic action

29

7. Information technology 33

8. Project management 38

9. Financial analysis & people 41





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Chapter 1 The Strategic Position of anOrganization

START

The Big Picture

This chapter provides us with a number of key definitions as well as an introduction to some

of the main strategic models.

KEY KNOWLEDGE

Definitions & strategic models

Key definitions:

Strategy: Various definitions are present but a straightforward view is “Strategy is a plan of

action designed to achieve a particular goal”

Strategic planning: An organisation’s process for ascertaining the strategy it should adopt,

taking into account what they want to do, how they are going to do it and what resources

they will need. Strategic planning covers where the organisation is planning on going,

impacts on the whole organisation and involves the long term view. Note the distinction in





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what is meant by “long term” (for example the “long term” is different when comparing the

airline industry with the fashion industry.)

Strategy Hierarchy:

Corporate strategy: covers the “big view” of the organisation.It answers the question “What business or businesses shouldwe be in?

Business strategy: the strategy of a single business

organisation or the strategies of strategic business units

(SBUs)

Functional (or operational) strategy: the functional strategies

involving items such as marketing, IT and HRM that support

the business strategy.

It is important that the strategies support each other. For example, if the Business Strategy

of a SBU revolves around providing high quality consultancy advice on certain areas, a

functional strategy for HRM of minimising labour costs would cause problems.

Different strategic models:

1. Johnson, Scholes and Whittington (JSW): The “Rational Model” which shows the strategicplanning process in 3 categories of analysis – choice – implementation.

2. Mintzberg’s Emergent strategy: Very few strategies will result in outcomes exactly as

planned. Instead, strategy will “emerge” and develop over time as the strategy evolves. It

will result in intended, realised and emergent strategies.

3. Lindblom’s incrementalism: Supports the view that strategy delivery should be based on

small (incremental) changes over time rather than a limited number of extensive planned

strategies.

4. Freewheeling opportunism: No planned strategy approach. Grab opportunities as andwhen they are identified.

5. JSW “strategic lenses”: design - experience - ideas

Strategic planners should look at strategy through all 3 lenses.

Corporate

Business

Functional





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Analysis

ImplementaionChoice

• Strategy is a process of “design” with logical thought out processes(in effect, a rational model).

Strategy as design

• Strategy develops based on previous experiences (in effect, anemergent strategy).

Strategy as experience

•Strategy comes from within the organisation as opposed to thesenior management. Ideas are created at all levels of anorganisation.

Strategy as ideas





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Chapter 2

The Environment and CompetitiveForces

STARTThe Big Picture

In order to design suitable strategic plans, an organisation needs to be aware of the

external issues facing it. It cannot plan in isolation. This chapter looks at a number of

methods of reviewing the environment surrounding an organisation. This area is examined

on a regular basis.

KEY KNOWLEDGE

PESTEL (or PEST or SLEPT) Analysis

An analysis of the external macro environment. The organisation is unlikely to be able to

influence these factors but it should have an awareness of the issues.

Political - global, national and local changes and trends. Taxation policies. Relationships

between certain countries.

Economic - global, regional and local issues. Exchange rates. Link to topical issues such as

global recession, current interest rates for funding.

Social - changes in behaviour and expectations in society. Demographics, lifestyle.





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Technological - changes including hardware, software, e-issues, materials and services.

Global communications.

Environmental – what are the environmental considerations such as recycling, pollution,attitude of the media, customers, etc.

Legal - changes and predicted changes to regional (e.g. EU) and national legislation.

Regulatory bodies. Changes to employment law.

KEY KNOWLEDGE

Porter’s Diamond

This is a model outlining the theory why certain industries are competitive in particular

locations.

There are 4 broad factors within the diamond.

Factor conditions include physical resources, human resources and specialised resources.

Demand conditions. A country with sophisticated home buyers who “demand” quality,

advanced and innovative products can create international competitiveness

Related and supporting industries can produce inputs for a company which feed into the

success of the business.

Firm strategy, structure and rivalry. Competition in the home market drives innovation and

quality. Protectionism can weaken a market.

Factor

Conditions

DemandConditions

Related &

Supporting

Firm Strategy& Structure





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KEY KNOWLEDGE

Quantitative Techniques

In addition to the qualitative methods of forecasting mentioned above, there are

quantitative techniques where businesses attempt to quantify these forecasts.

Techniques include:

1. Linear regression

This can be used to make forecasts whenever a linear relationship is assumed or predicted.

It models the dependence of one variable (e.g. costs) on one or more explanatory variables

(e.g. output).

2. Time Series Analysis

This involves analysing historical data to make forecasts about the future. The relationship

doesn’t have to be linear and can for example take account of seasonality.

KEY KNOWLEDGEPorter’s 5 Forces

This model examines the role of 5 forces close to an organisation that impact on its ability to

make a profit and hence how attractive a particular market or industry is.

There are 5 forces as follows:

1. Threat of substitute products

If there are similar products, a customer will be more likely to switch rather than stay with a

product when there are price rises (elastic demand).

2. Competitive rivalry

The rivalry will depend on the number and strength of competitors, economies of scale and

exit barriers.





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3. Threat of new entrants

Markets generating high returns will attract new entrants which in turn could reduce

industry profits. Barriers to entry such as government licenses (mobile phone operators) areimportant in reducing the threat of new entrants.

4. Power of customers

The stronger the power of the customer the more pressure it can place on the company.

Issues to consider include the size of the customer relative to the firm’s customer base,

switching costs and availability of substitute products.

5. Power of suppliers

Suppliers of materials and services can exercise power over an organisation. This dependson the level of differentiation of the product, presence of substitute products, etc. Compare

the power of Intel supplying computer chips to the computer industry vs. a sugar producer

supplying sugar to a soft drinks manufacturer.

Competition

Entrants

Customers

Substitute

Suppliers





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KEY KNOWLEDGE

Product life cycle

The conditions in which a product is sold change over its life.

Introduction Growth Maturity Decline

Characteristics of each stage

Introduction Growth Maturity Decline

Product

Potentiallyunique product.Quality stillbeing “tested”.

New entrantsarrive.Designimprovements.

Products start tobecome similarwith fewdifferences.

Product mayhave minorenhancementsto try to “extendthe tail” of thelifecycle.

Price

Could be highfor “skimpricing” or low

for penetrationpricing.

Price can bemaintained butpressure onpricing arisingdue to increasedcompetition

Possibly reducedprices due toincreasedcompetition.

Possible furtherreductions to

stimulate sales.

PlaceLimited,specialistlocations.

Distributionchannelsincrease asdemand rises.

Widespreaddistributionchannels.

Reduced numberof distributionchannels.

Promotion Aimed at the “early adopters”.

Expands to thelarger market.

Focus on anydifferentiatingproducts.

Limited amountof promotion.





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Strategic groups

A strategic group comprises companies within an industry that have similar characteristics or

business models. For example, the courier industry can be divided into different strategic

groups such as the global courier companies (e.g. DHL, FedEx, TNT and UPS) and national

courier companies based on variables such as size, geography served and strategic

approach.

An analysis of strategic groups is useful as it helps to identify competitors and how they

compete as well as identifying potential opportunities.





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Chapter 3

Marketing and the Value of Goodsand Services


Paper P3 is not a marketing exam but you need to have an understanding of the

fundamental principles behind marketing and how they impact on the strategic process.

KEY KNOWLEDGE

Market segmentation

A market segment is a group of customers that share similar characteristics and as a result

have similar needs. Ideally, a market segment should have the following:

• distinct from all other segments

• be the same within the segment

• identifiable and accessible

Methods of segmentation

There are numerous methods. Two of the most common ones are:





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• geographical (e.g. country or region)

• demographic (e.g. age, gender, occupation)

KEY KNOWLEDGE

Marketing mix

The 'marketing mix' is a set of controllable marketing tools that organisations can use to

achieve its marketing objectives. It is commonly known as “the 4Ps”.

Product• Features

• Size, colour, components• Brand• Packaging• Accessories

Price• Pricing strategy (e.g. penetration,

skim)• Discounts (e.g. volume, payment)• Payment / credit terms

Place• Distribution channels• Geographic coverage• Warehousing and inventory levels• Transportation

Promotion• Selling strategy• Sales promotion• Advertising

The service marketing mix (extended marketing mix) refers to the 7Ps. Namely, the 4Psmodel plus:

People

• Customers

• Employees – recruitment and training

• Management

Processes

• Methods of providing a service

Physical evidence

• Linked to using a service – e.g. brochure, certificates





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KEY KNOWLEDGE

Critical success factors (CSF)

Within any organisation there are certain factors that will be critical to the success of that

organisation. If the organisation fails to achieve the objectives associated with these

particular factors the organisation will fail.

CSFs will vary from industry to industry. An example of a CSF for an online food delivery

company would be prompt and accurate home delivery.

Key Performance Indicators (KPIs) measure the performance of the CSFs.

KEY KNOWLEDGE

Porter’s value chain

Support

Activities

Primary Activities

Technological Development

Human Resource Management

Firm Infrastructure

Procurement

I n b o u n d

L o g i s t i c s

O p e r a t i o n s

O u t b o u n d

L o g i s t i c s

M a r k e t i n g

& S a l e s

S e r v i c e

S u p p o r t

P r i m a r y

The value chain was introduced by Porter and represents an approach to looking at the

development of competitive advantage within an organisation. All organisations consist of

activities which “link” together to develop the value of a business. Together these activities

represent the value chain.

The value chain represents a series of activities that both create and build value. Combined

they represent the total value delivered by an organisation. The “margin” in the diagram is

the added value (the difference between the total value of the activities and the cost of

performing them).

Primary activities: related with production. Support activities: provide the background

for the effectiveness of the organisation (e.g. HRM)





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Chapter 4

Internal Resources and Stakeholder


This chapter looks at how organisations utilise resources and competencies to develop

competitive advantage.

KEY KNOWLEDGE

SWOT analysis

Strengths (internal)

e.g. resources and capabilities

Weaknesses (internal)

e.g. lack of certain resources or capabilities

Opportunities (external)

e.g. arrival of new technology

Threats

e.g. arrival of substitute product





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Threshold resources and competencies: These are the minimum required by an organisation

to meet customer’s minimum requirements. In effect, this is what is required to stay in

business.

Core competencies: These are processes and activities undertaken by an organisation which

are seen as being central to their success. Core competencies are capabilities which are

critical to a business achieving competitive advantage.

They provide customer benefits and are difficult for competitors to imitate.

A core competency can take many forms such as technical knowhow or customer

relationships.

Amazon.com has a number of core competencies such as reliable and efficient online

ordering and delivery system.

KEY KNOWLEDGE

Stakeholder mapping

Stakeholders are individuals, groups or organisations that can impact or be impacted by, an

organisation.

Mendelow’s Matrix allocates stakeholders into quadrants according to their level of power

and how likely they are to exercise that power (i.e. their interest).

Stakeholder InterestLow High

StakeholderPower

High

Keep satisfied Key players

Low

Minimum effort Keep informed

Low High





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KEY KNOWLEDGE

Culture

The Cultural Web (Johnson) provides an approach for analysing or influencing anorganisation’s culture.

There are 6 inter-related elements which together help to create the “paradigm” (pattern) of

the work environment.

1. Stories and myths – The previous events and people talked about. Creates a message

about what is valued.

2. Rituals and Routines – The daily behaviour of people within the organisation that signals

what is acceptable.

3. Symbols – Logos and design, dress codes.

4. Organisational Structure – Both the formal and informal reporting structures.

5. Control Systems – Processes in place to control the organisation.

6. Power Structures – who makes the decisions, who influences the strategic direction?

Corporate Social Responsibility (CSR) refers to the organisation’s duty to look after allof its stakeholders as opposed to just the shareholders.

Traditionally, CSR was often seen as a burden on a company but now it is often seen as asource of opportunity (e.g. improvement in a company’s reputation).

CSR often involves a Stakeholder Needs Analysis whereby organisations identify their keystakeholders and what their needs are.

The

Paradigm

Stories

Rituals

Symbols

Organ.

Structures

ControlSystems

Power

Structures





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Chapter 5

Strategic Choice


This chapter covers a number of important issues. The focus is on the choices available to

an organisation as well as methods for making appropriate decisions.

KEY KNOWLEDGE

Parenting style theory (Gould & Campbell)

This is a framework for the role of the corporate headquarters and how it gets involved in

the strategic development of the businesses within the group.

They identified 3 styles which companies tend to follow:

Financial Control Strategic Control Strategic Planning

Head office sets financialtargets but limited role insetting strategy of SBU.

A middle ground betweenfinancial control and strategicplanning. Head office co-ordinates and reviewsstrategy.

Head office plays a centralrole in setting the strategy of the SBU.





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KEY KNOWLEDGE

Boston Consulting Group (BCG) Matrix

This matrix helps organisations analyse their product lines or business units. It helpsidentifies priorities and where resources should be allocated.

Items are allocated to the various quadrants according to how attractive the market is

(measured as the growth rate) and how strong a position they hold within the market (their

market share)

Market Share

High Low

G r o w t h R a t e High Stars Question Marks

Low Cash Cows Dogs

A balanced portfolio would have:

1. Stars to ensure the future.

2. Question marks to convert to Stars.

3. Cash Cows to provide funding to develop the Stars and Question Marks.

General Electric matrix

An organisation’s SBUs are entered onto the matrix based on industry attractiveness and

business strength. The appropriate action for each segment is shown in the table below.

B u s i n e s s P o s i t i o n

HighSelective

Investment Invest / Grow Invest / Grow

Medium Harvest / DivestSelective

InvestmentInvest / Grow

Low Harvest / Divest Harvest / DivestSelective

Investment

Low Medium High

Industry Attractiveness





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Business strength determined by for example, financial position, competencies and supplier

relationships.

Industry attractiveness determined by for example, competitors within the industry, growthrate of industry.

The three cells in the top right hand corner of the matrix are the most attractive in which to

be. These require a policy of investment for growth.

The three cells running diagonally are of medium attractiveness. Management should review

these carefully to determine which ones to invest in and retain.

The three cells in the bottom left hand corner are less attractive. Management should

consider a policy of harvesting or divesting these items.

KEY KNOWLEDGE

Porter’s Generic Strategy

Porter identified 3 generic strategies that are commonly used by businesses to create and

maintain competitive advantage:

• Differentiation

• Cost leadership

•

Focus

Selling price

Higher profitdue to higherselling price Profit

Sellingprice

Sellingprice

Profit

Profit

Higher profitdue to lower

cost

Cost Cost Cost

Differentiation "In themiddle"

Costleadership





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1. Differentiation

This involves a product or service that is considered to be “different” or unique within itsindustry. Due to these unique characteristics the organisation can charge a premium. The

uniqueness of the item could be based on a variety of things such as the design, technical

features, support service, branding, etc.

Examples of companies that have used the differentiation strategy include:

• Apple computers, iPhones and iPods.

• Land Rover off-road cars.

2. Cost leadership

This is where an organisation can produce goods or services at a lower cost than the

industry average. Importantly, note that this does not mean lower quality.

Low cost production can be obtained by way of economies of scale, preferential access to

raw materials or labour, access to extensive distribution channels, etc. The “cost leadership

product” is often a basic good or service which is made available to a large customer base.

Examples of companies that have used cost leadership strategies include:

• Dell computers

• Wall mart stores

3. Focus

This is where an organisation concentrates on a small number of niche markets.

Differentiation focus – an example would be a specialist holiday or tour operator (e.g.

specialising in Skiing holidays).

Cost focus – an example would be a small chain of retailers that create their own label rangeof products.

Strategy clock (Bowman)

The strategic clock is a method of analysing an organisation’s competitive position in

contrast with its competitors’ ways of competitive positioning.





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The clock is classified into 8 parts. Namely:

1. Low added value

2. Low price

3. Hybrid

4. Differentiation

5. Focused differentiation

6. High price / standard value

7. High price / low value

8. Standard price / low value

4. Differentiation

H i g h

5. Focussed

differentiation

3.

Hybrid

P e r c e i v e d

a d d e d

v a l u e

2. Low price 6

7

1. Low price, low

added value 8

L o w

Low Price High





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KEY KNOWLEDGE

Ansoff’s matrix (the Product – Market Mix)

This allows companies to identify a number of options to grow the business via existing and

/ or new products in existing and / or new markets.

Existing Products New Products

Existing Markets

1. Consolidation

2. Penetration3. Withdrawal 4. Product development

New Markets 5. Market development 6. Diversification

1. Consolidation. This is not “doing nothing”. It is doing enough to maintain the existing

position.

2. Penetration. Actively trying to increase the share of the market through techniques

such as advertising and PR.

3. Withdrawal. Pulling out of a particular market. Reasons could include it’s loss making

or a company wants to utilise resources elsewhere.

4. Product development. Developing new products to sell to existing markets. An

example would be a soft drinks manufacturer launching a new healthy range of

drinks.

5. Market development. Existing products are sold in new markets. This can either be

for example geographical (McDonalds establishing restaurants in new geographical

areas) or can be repositioning the market (e.g. Land Rover developing from an

agricultural market vehicle to mainstream car producer).

6. Diversification. Generally considered to be the most risky. There are a number of

types of diversification:





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a. Backwards vertical integration whereby an organisation takes on the role of

its supplier. An example would be an oil refining company taking on the role

of its supplier of oil exploration – i.e. it would now be in a position to supply

itself with its raw materials.b. Forwards vertical integration whereby an organisation takes on the role of its

customer. For example, a farmer sets up a farm shop to sell direct to the

public rather than to shops.

c. Unrelated diversification refers to a new product or service in a completely

new market.

Methods of expansion.

Internal Development. “Organic” growth using an organisations own resources.

Mergers & Acquisition. Often treated as being the same thing, these are in fact different. A

true merger is a “joining of equals” where organisations of approximately the same size and

strength come together (e.g. when Glaxo Wellcome and SmithKline Beecham merged to

form GlaxoSmithKline). An acquisition (or takeover) is usually the purchase of a smaller

target company by a larger one. The acquisition may be friendly (the company being

acquired is in favour of the takeover) or hostile (the company does not want to be taken

over).

Strategic Alliance. A formal relationship between parties which aims to achieve certain

strategic objectives whilst enabling them both to remain independent. An example of a

strategic alliance would be when a hotel chain and a restaurant chain work together.

Franchise. The Franchisor gives the right to the Franchisee to use its brand in exchange for

a capital sum and /or a royalty payment. Examples of a franchise include certain McDonald’s

restaurants around the world.





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Chapter 6

Strategic Action


This chapter covers a number of techniques involved in the implementation of strategicplans.

Structures

Corporate structure was studied at paper F1. Paper P3 is not so much about explaining the

structures but rather matching the appropriate structure with the chosen strategy.

Types of structure

• Functional: based around functions such as production, R&D, sales, etc

• Divisional: based around divisions which could be geographic divisions or productdivisions.

• Matrix: this combines functional and divisional





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KEY KNOWLEDGE

The Change Kaleidoscope (Balogun and Hope Hailey)

This helps management design approaches to change within a company. It contains 3 rings:

• An outer ring which relates to the wider strategic change.

• A middle ring which looks at the more specific change features.

• An inner ring which provides a range of choices for management to use.

The kaleidoscope does not create prescriptive choices for management to use. Instead, just

like a real kaleidoscope changes the image so the change design mechanisms will change.

KEY KNOWLEDGE

Lewin’s change models

1. Unfreezing, Moving, Refreezing

Unfreezing Moving Refreezing

Shows the need for changeand gets people “ready” forchange.

The actual change occurshere.

Stabilising the situation tothe new approach.

Design Choice

- change path

- change start

- change target

- change roles

Time

Scope

Preservation

DiversityCapability

Capacity

Readiness

Power

Organisational Change Context





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Change can only happen once people have been “unfrozen” and existing ideas and

misconceptions have melted.

2. Force field analysis

The length of the arrow represents the time duration of the force and the thickness of thearrow represents the strength of the force.

There are driving forces pushing for change and forces resisting change. To encourage

change, change agents should strengthen driving forces and reduce restraining forces.

KEY KNOWLEDGE

Business Process Reengineering (BPR)

BPR is a method aimed at improving the efficiency and effectiveness of business processes

within an organisation.

The process – strategy matrix (Harmon) is based on:

• The importance of the process

• The complexity of the process

Driving forces (pushing

for change)

Restraining forces

(resisting change)

Current state Desired state





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P r o c e s s t y p e

C o m p

l e x Complex process that are not part

of core competencies.

Outsource

Complex processes of high

strategic value.

Focus on peop le based p rocess

imp rovemen t s

S i m p l e

Simple processes of low value.

Autom ate in ERP app l i ca t i on

o r ou tsource

Simple processes of high strategicvalue.

Autom ate fo r e f f ic i ency

Low High

Strategic importance of process

Business processing Outsourcing (BPO) is a form of outsourcing that involves contracting 3rd

parties to undertake specific functions. Typically, back office functions such as accounting

activities are outsourced.





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Chapter 7

Information Technology


This looks at IT in the context of supporting strategic plans and linking with various models

referred to previously such as Porters 5 Forces, Value Chain Analysis, etc.

What is e-business?

E-commerce is the buying and selling of goods and services over the internet.

E-business is broader than e-commerce as it also includes IT issues that support key

business processes as well as enabling businesses to work more closely with suppliers and

to better satisfy customer needs.

It inherently involves fast moving and innovative processes.

B2B (Business to business): transactions between business (e.g. a manufacturer to a

wholesaler). Could be used to link a VCA of the purchaser to a VCA of a supplier.

B2C (Business to Consumer): an individual purchasing from a retailer.

Stages of eBusiness





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1. Web presence – in effect being simply a “brochure on the internet”. The aim is to reach a

wider audience and broaden the brand image.

2. Basic e-commerce - undertaking entry level e-commerce to enable the business toconduct transactions on line. Facilities such as PayPal have made this possible for even the

smallest of businesses.

3. Building and maintaining relationships – integrating core areas of the business to enable

closer and quicker relationships with suppliers and customers. Includes CRM facilities.

4. Creating the future – fully integrated systems with minimal human interaction. Systems

update automatically.

McFarlans Grid

This is used to assess business and IT alignment and to select projects which need

developing.

Strategic impact of future systems

Low High

S t r a t e g i c i m p a c

t o f

c u r r e n t s y s t e m

s

Low

Support - Uses IT primarily for

support activities such as payrollprocessing.

Turnaround – not overlydependent on IT at the moment

but may look to use IT to improveposition in the future.

High

Factory – IT is used heavily forday to day business but not

viewed as a competitiveadvantage.

Strategic – critical for successboth now and in the future.

Push / Pull Supply Chain

A supply chain is the system of resources, processes and people that move a product or

service from the initial supplier to the end customer. The supply chain transfers the raw

materials into a finished product that will be delivered to the end customer.

A push based supply chain is where the products are pushed through the process to the end

customer (i.e. from production to retail). Manufacturing levels are often based on historical

levels.





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The majority of businesses comprise a hybrid of some form between push and pull supply

chains. Ford is an example of a business at the push end of the scale whilst technology

companies such as Dell are at the other end where demand pull is dominant.

E-marketing using the 6 Is.

1. Interactivity – traditional marketing is mainly push whereas e-marketing is

predominately pull (i.e. the customer looks for the information)

2. Intelligence – a wide variety of low cost marketing information can be collected.

3. Individualisation – personalization is easier compared to the traditional mass

marketing methods.

4. Integration – possible to integrate e-communication into the wider e-buying process.

5. Industry structure – can be radically impacted as a result.

6. Independence of location – e communication creates global possibilities from remote

locations.

Customer Relationship Management (CRM) consists of systems and processes that

organisations use to organise and develop both current and prospective customers. Typical

objectives of a CRM system are to improve customer service, build loyalty and ultimately

improve the performance of the organisation.

CRM involves such activities as front office (e.g. direct contact with customers), back office

(e.g. invoicing procedures) and B2B relationships (e.g. interaction with suppliers).

E-business Pricing

E-business pricing can follow similar pricing techniques to traditional areas of business.

Points to be aware of include:

Price-Quality Relationship

A priori one would expect a positive correlation between price and quality.





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The four principal pricing strategies are shown in the above quadrants. The more interesting

ones involve High-Low and Low-High combinations.

Economy (pricing)

This is a no frills low price.

Skimming

Enter the market at a high price to catch customers willing and able to pay the price.

Penetration pricing

Go in at a very low price to win market share.

Premium pricing

Maintain a high price due to the nature of the product.

Cost plus

A markup is added to the (production) cost.

Target pricing

This method “backs into” the price by calculating the required profit and the possible

production costs first.

Promotional Pricing

These are in support of campaigns to raise customer awareness of a product.

Skimming Premium

Economy Penetration

High

Low

Low High

Price

Quality





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Perceived value pricing

Plays on perception of value and what the market is willing to pay.

Value Pricing

Increasing the value content of the product so as to defend market share (in times of

difficult economic conditions or competition).

Product range pricing

Sell a “core” product cheaply and price high related products.

Captive Product Pricing

Similar to “product range” but product is more closely tied to the initial product.

Competitive pricing

Using competitors as a benchmark.

Price differentiation

Pricing the same product at different levels in different markets.

Psychological Pricing

Plays on the emotion of the consumer.

Product Line Pricing

The overall price reflects the benefits provided by the constituent parts.

Optional Product Pricing

The pricing of additional products and services once the customer has made the initial

purchase.

Product Bundle Pricing

Combining products into one pack and pricing it overall.

Geographical Pricing

Similar to price “differentiation”.





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Chapter 8

Project Management

Project management is the process of planning and organising resources to achieve aspecific goal or objective. A project is a separate task having a defined beginning andending. Given the temporary nature of the majority of projects there are specific skills that

are necessary for managing projects.

Typical challenges for project management are:

• Scope (what exactly is required from the project)

• Time

• Budget

The major stages of project management revolve around the following:

• Initiation

• Planning or development

• Production or execution

• Monitoring and controlling

• Closing





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Stages of project management

KEY KNOWLEDGE

Work Breakdown Structure

A work breakdown structure (WBS) is a tool used in project management to breakdown andorganise the total work of the project into individual discrete components. An extract for aWBS when a company decides to enter a new market with an existing product is:

Enter a new market

Team 1

Marketing

Ideas

Marketing

plan

Team 2

Logistics

Local

distributors

Transport

mechanism

Team 3

Legal

Local

requirements

Accounting

consolidation





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KEY KNOWLEDGE

Network diagrams (Critical Path Analysis)

Critical Path Analysis (CPA) formally identifies tasks which must be completed on time forthe whole project to be completed on time. It is a project management tool that identifies:

• Individual activities that make up a project.• The order in which the activities have to be undertaken.• Activities which can only happen once other activities have been completed.• Activities which can be undertaken simultaneously.

KEY KNOWLEDGE

Project Initiation Document

A Project Initiation Document (PID) is a term representing the initial plan of approachfor a project.

The PID brings together all the key information that is needed to commence and run theproject. All the project stakeholders should be aware of it and it should be signed off by theproject sponsors.

It defines all the major aspects of a project and forms the basis for its management and theassessment of its overall success.

Typical contents of a PID include:

• Project objectives

• Scope

• Project team members

• Business Case

• Constraints





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Chapter 9

Financial Analysis and People


Financial analysis is dealt with in depth elsewhere in the ACCA syllabus. The key

thing for the P3 syllabus is using financial information to support or enhance your

arguments.

KEY KNOWLEDGE

Financial expectations of stakeholders

Johnson & Scholes propose that strategic options are evaluated using:

1. Suitable. Would it help? Does it fit in with the strategic position of the

organisation. e.g. does it take advantage of an opportunity or reduce a threat

(within SWOT analysis)

2. Feasible. Would it work? Use of techniques such as cash flow analysis and

working capital reviews.





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3. Acceptable. Is it acceptable to the relevant stakeholders? Techniques to use

include NPV, ROCE, sensitivity analysis and ratio analysis.

Financial implications of strategic choices.

1. Efficiency ratios (e.g. asset turnover, debtor days and creditor days).

2. Gearing ratios (e.g. debt equity ratio).

3. Liquidity ratios (e.g. current ratio and quick ratio).

4. Profitability ratios (e.g. gross margin, operating margin and ROCE).

5. Interest ratios (e.g. interest coverage).

Leadership

There are numerous theories on leadership.

Analysing them into two complementary groups results in:

1. Traditional. This group includes the trait theories which state that a person will be a

good leader if they have certain characteristics (traits).

2. Contemporary. This group involves transactional leaders (who focus on systems and

processes) and transformational leaders who provide vision and inspiration as well as

utilise emotional intelligence to improve the situation.

KEY KNOWLEDGEThe Budgetary Process

Budgets

A budget is a quantitative plan addressing the future.

Budgetary control systems seek to monitor performance against the budget in a timely wayso that deviations can be identified and rectified. The system can only work as well as thecare and thought that went into defining performance targets to be measured, and theincentives (and sanctions) that follow from achievement (or not) of those targets.

Goal congruence at all levels of the organisation – corporate, divisional and individual – mustexist for a budget, and its attendant control systems, to be effective.




Problems frequently encountered when using conventional budgets:

• They invite “gaming” of the system;• They can be inflexible;• They are often imposed from the top – “Top Down”;• There is an indirect connection with the company’s strategy;• They are used for too many different purposes;• They reinforce centralising tendencies in the company;• There is a lack of goal congruence between corporate, divisional and individual goals

KEY KNOWLEDGE

Decision Trees

A decision tree is a schematic tree-shaped diagram which is used to determine a particular

course of action. Each branch of the decision tree shows a possible decision or occurrence.

The tree structure shows how one choice flows to the next. The use of branches indicates

that each option is mutually exclusive.

Decision trees allow users to take a situation with multiple possible solutions and display it in

a simple, easy-to-understand format that shows the relationship between different events or

decisions. The tree starts on the left and the furthest branches on the tree representpotential end results.

(end of ExPress Notes)

Documents

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